Structural Demand Provides Buffer
Demand from the energy transition and artificial intelligence sectors now accounts for approximately 18% of total global copper consumption, according to Citigroup. This segment has been responsible for nearly all of the incremental demand growth since the pandemic.
This structural demand provides a significant buffer against cyclical weakness. Historically, major economic downturns have led to annual copper demand declines of three to five percent. Citigroup calculates that a 5% drop in cyclical demand today would only translate to a 1.7% fall in total global consumption, assuming structural demand remains constant. Further, military applications, which are growing, represent another 9% of global copper use, or about 2.5 million tonnes annually.
Sulphur Shortage Hits Supply Chain
The ongoing closure of the Strait of Hormuz is tightening the copper supply chain by disrupting the flow of sulphur, a critical byproduct of oil and gas production used to make sulphuric acid. Sulphuric acid is essential for extracting copper from ore in hydrometallurgical (leaching) operations, which are common in major producing regions.
According to commodity analytics firm Kpler, seaborne sulphur volumes from the Middle East collapsed to just 30,000 metric tons in April, down from a monthly average of 1.27 million tons before the conflict. This has caused delivered sulphur prices in Asia to soar by 50% to as high as $880 a ton, according to Reuters. While the high price of copper limits the immediate risk of mine curtailments, the rising cost of inputs like sulphur is a significant headwind for producers.
'Just-in-Case' Stockpiling
A longer-term price support is emerging from a shift in inventory strategy. As geopolitical uncertainty rises, governments and corporations are moving from a "just-in-time" to a "just-in-case" supply chain model, increasing their willingness to hold larger strategic stockpiles of essential metals like copper.
Citigroup estimates that lifting global refined copper inventories from the current level of 1.3 months of consumption to a more secure two months would require a sustained copper price of $14,423 per tonne to incentivize the necessary supply. This dynamic suggests that high prices and inventory builds can coexist as the market pays up for supply security.
This article is for informational purposes only and does not constitute investment advice.
